US represses Russian debt payments, latest sovereign payments have been halted

US represses Russian debt payments, latest sovereign payments have been halted

US represses Russian debt payments, latest sovereign payments have been halted

Under the sanctions put in place after Russia invaded Ukraine on February 24, the foreign exchange reserves held by the Russian central bank in US financial institutions have been frozen.

But the Treasury Department had allowed the Russian government to use those funds to make coupon payments on dollar-denominated sovereign debt on a case-by-case basis.

On Monday, when the largest of the payments was due, including a principal payment of $ 552.4 million on a maturing bond, the U.S. government decided to cut Moscow’s access to frozen funds, according to a spokesperson for the United States Treasury.

A $ 84 million coupon was also due on Monday on a 2042 sovereign dollar bond.

The move was intended to force Moscow to make the difficult decision whether to use the dollars it has access to for debt payments or for other purposes, including supporting its war effort, the spokesman said.

Russia faces a historic default if it chooses not to.

“Russia has to choose between the drying up of the remaining precious dollar reserves or new inflows, or default,” the spokesman said.

JPMorgan Chase & Co (JPM)which up until then was processing payments as a correspondent bank was stopped by the Treasury, a source familiar with the matter said.

The correspondent bank processes the coupon payments from Russia, sending them to the paying agent for distribution to foreign bondholders.

The country has a 30-day grace period to make the payment, the source said.

Predefined concerns

The increased pressure comes as the US and Europe are planning new sanctions this week to punish Moscow for killing civilians in Ukraine.

Russia calls its move to Ukraine a “special military operation”. Ukraine and the West say the invasion was illegal and unjustified. Burning images of a mass grave and the bound bodies of people killed at close range sparked an international outcry on Monday.

Russia, which has a total of 15 outstanding international bonds with a face value of around $ 40 billion, has so far managed to avoid defaulting on its international debt despite unprecedented Western sanctions. But the task is getting more and more difficult.

Russia was last allowed to pay a $ 447 million coupon on a 2030 sovereign dollar bond, maturing last Thursday, at least the fifth such payment since the war.

If Russia does not make any of its upcoming bond payments within the allotted timeframe, or pays in rubles where dollars, euros or another currency are specified, it will constitute a default.

Although Russia is unable to access international financial markets due to Western sanctions, a default would prohibit it from entering those markets until creditors are fully repaid and all lawsuits arising from the default are not. will be resolved.

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